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Swedish mattress company Hilding Anders has pitched a debt restructuring to its lenders as it struggles to deal with the rise in input costs and uncertainty surrounding the war in Ukraine. Under the agreed plan, the group’s €562m outstanding debt will be bifurcated with a portion exchanged into a HoldCo PIK. A sale of the European business is to be conducted in 2024 with Russia and Asia business sales timelines to be determined.

The proposal comes after refinancing the debt proved impossible given its significant exposure to Russia and an extremely difficult primary market, said sources close to the situation.

The group has a €515m E+450 bps term loan B facility due in November 2024 and a €47m drawn E+400 bps revolving credit facility maturing in November 2023.

Last week Reorg reported that Hilding Anders would like to reinstate €300m of senior debt into a new facility maturing in February 2026, with sources close to the situation confirming the information to 9fin. The remaining €260m will be converted into a holdco PIK paying 12%.

Sponsor KKR is looking to gradually put its investment to bed by selling the various parts of Hilding Anders and this debt extension will give it the time to do this, said a source close to the situation. As part of the proposal, KKR will receive contingent value rights for the proceeds of the eventual sale of the business’ various entities in Europe, Russia and Asia. A condition of the proposal, is that the group will appoint a financial advisor on 1 January 2024 to commence the sale of its European business by the middle of 2024, the first source close said. A timeline for the sale of the Russian business was not provided as it’s hard to predict what will happen with the war in Ukraine, they explained.

Russian subsidiary Askona will be taken out of the restricted group. Covenants are also tightened up in the proposal, the same source said.

Hilding Anders has asked its lenders to consent to the deal, with the deadline being the end of next week. The company is advised by PJT Partners (financial) and Kirkland & Ellis (legal). The lenders are being advised by Lazard and Latham & Watkins.

An ad hoc group of lenders which hold 58% of the outstanding debt has locked-up to the deal. More lenders are coming forward to join, according to the source close. A committee of lenders formed three months ago consisting of Barings, M&G, Invesco, Skandinaviska Enskilda Banken (SEB), DNB and Nordea.

Barings, M&G and Invesco hold around 50% of the outstanding debt.

DNB did not wish to comment and the rest of the lenders did not respond.

The lenders are broadly receptive to the deal, the source close said. “It’s not one of those deals, where it’s like wow it’s great and amazing [but] it’s a fairly unique deal,” he said. “It’s a CLO heavy syndicate that wants to protect their position and reinstate the debt.”

“It would be very difficult for the banks to own the Russia subsidiary. The deal preserves optionality there,” he added.

One of the largest lenders told 9fin they are supportive. "I think people are going to be on board with this one. it's obviously been a name of concern and it's good for both parties if they get that runway at the end of the day," he said.

Their loans came under pressure after the start of the Russia/Ukraine conflict. The TLB traded down from 83.5 at the end of February to 66.5 by the beginning of March. The loans hit 51 at the end of March and were 46.25-mid by the end of June. The TLB is currently quoted at 36.5-mid. Price movements shown below:

Before the invasion of Ukraine the group was already struggling due to a fall in sales during Covid-19.

The group reported net sales of SEK9,546m (€889.7m) in 2020, down from SEK10,414m in 2019. 2020 gross profit dropped to SEK2,462m down from SEK2,860m in 2019. The business was also severely affected by input cost inflation since 2020, again hitting margins. Key materials such as wood, metal, foam and fabric all rose in 2020, with one mattress supplier saying that of his 50 suppliers, only two had not raised prices.

The company will be feeling a release of margin pressure, as key inputs cotton, steel and lumber have all declined to around pre-pandemic levels.

On March 10, Reorg reported that the group narrowly passed its FY2021 net leverage test of 5.25x after addbacks inflated its EBITDA figure and a working capital release boosted its cash balance and trimmed its net debt figure. The group reported a bullish budget for 2022 but excluded the impact of the war in Ukraine, the net leverage test tightens to 4.95x by the end of this year, notes the report.

In terms of management, there have been a number of changes as the sponsor sought to turn around performance. The group appointed chief transformation officer Xavier Peny on 8 April 2021 and Anders Wester joined the group as CFO on 1 March 2021.

The business entered the Russian market in 2007, where it generated 52% of its EBITDA in the year to November 2021 through its joint venture business Askona, according to LPC news.

Russia made up 38% of net sales and 53% of its employees were in the country in 2021, said a buysider previously.

Askona reported a 34% increase in revenue in the first nine months of 2021 at 33.732 billion Russian Rubles ($578.6m). The increase in sales volume in the retail channel was 29% and 21% in the online channel.

KKR first invested in Hilding Anders in 2013, providing a €350m PIK loan to the business to repay lenders and complete a recapitalization of the business. This was part of an amend-and-extend of its debt after a failed sale of the group earlier that year, according to the LPC article.

At the time the business was owned by private equity firm Arle Capital. In November 2016 KKR acquired Arle’s stake in the group, making it the majority shareholder. A year later KKR refinanced Hilding’s existing debt with the €500m TLB. The group also secured a six-year €50m senior secured revolver.

Hilding Anders started as a small family-owned business in 1939. It grew in size by acquiring companies, with 23 acquisitions made since 2001. It provides a broad portfolio of luxury, private label, international and local brands of sleep products to over 40 countries worldwide. Its brands include Sleepacy, Carpe Diem beds in Sweden, Jensen in Norway, BICO in Switzerland and Slumberland in China, Malaysia and Thailand. The group has over 10,000 employees.

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Hilding Anders springs debt restructuring proposal; Russia exposure impacts ability to refinance (9fin)

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